Zero MDR on RuPay, UPI to kill digital payments industry, says Payments Council of India

Slamming Finance Minister Nirmala Sitharaman's announcement that digital transactions made using RuPay credit cards or UPI QR codes will not face Merchant Discount Rate (MDR) from January 1, the Payments Council of India (PCI) on Monday said the move would kill the industry and make the business model unviable.

The Department of Revenue will soon notify RuPay and UPI as the prescribed mode of payment for digital transactions without any MDR -- percentage of the digital transaction that a merchant pays to banks and this cost is often passed on to the customer.

"Payment service providers play a vital role in growing digital payments. The prohibition on charge of MDR on RuPay and UPI would kill the industry and make the business model unviable. It's like nationalization of the payments industry," said Vishwas Patel, Chairman, PCI and Director Infibeam Avenues.

"There would be a significant negative impact on the payment ecosystem – innovation, job losses and a slowdown in the expansion of the digital payments in India," he said in a statement.

Sitharaman said that all companies with Rs 50 crore or more turnover should be mandated by the DoR to provide the payment facility through RuPay debit card and UPI QR code to customers.

All banks would start a campaign to popularise RuPay debit cards and UPI.

According to Patel, the move would also result in near stoppage in customer incentive spends by the participants.

"Elimination of MDR will dry out revenues and, therefore, will create catastrophic situation for new startups and fintechs, as banks will not pay for their service," he noted.

"Additionally, if there is zero revenues to be made from the over 500 million plus RuPay debit cards that are active in our country, then service providers will start withdrawing the existing deployed POS terminals from unviable small shops and establishments as continued maintenance of these POS machines, training and supply of printer rolls will increase their losses."

"If the government wants to grow digital payments acceptance, then making MDR zero is not the solution; a lower-controlled MDR along with added tax benefits to merchants will go a long way in growing acceptance in India," lamented PCI, the representative body of merchant acquirers and aggregators.

Digital payments in India are witnessing thriving growth with a compound annual growth rate (CAGR) of 12.7 per cent in the number of non-cash transactions, according to the global research firm KPMG.

Besides, the number of merchants accepting digital payments modes has increased to over 10 million in a short span of two to three years.

According to Navin Surya, Chairman Emeritus, Payments Council of India (PCI), current ongoing regime of no MDR charge for below Rs 2,000 transactions were already working and was supported by the industry.

"Digital payments vs cash during demonetisation was around 13 per cent of retail spent and are now around 11 per cent with increasing cash in circulation. Such a move would weaken industry position to drive growth aggressively," said Surya.